How the country became the first to legalize the cryptocurrency.
Bitcoin is a form of cryptocurrency – digital data which can be traded as currency. It’s fully decentralized, which means that individuals can deal directly with one another when exchanging Bitcoin, and they don’t need to go through any third-party intermediary organization. This decentralization is just one of the reasons that so many people find the prospect of Bitcoin becoming legal tender so attractive.
Despite governments all over the world resisting the cryptocurrency and maintaining its transactional illegality, El Salvador has taken a different stance.
In September 2021, El Salvador made Bitcoin legal tender, becoming the first country to do so. Nayib Bukele, the country’s president, took the unprecedented leap towards a crypto-fueled nation, with noble intentions. His hopes are that by legalizing Bitcoin, El Salvador will benefit from increased investments and its people will be afforded a more economical and effective way of sending money back to their homelands, compared with traditional banking.
But, it’s not all been smooth sailing. Critics believe that the country wasn’t ready for the move to legalizing Bitcoin, and that the technical difficulties experienced by the thousands of citizens who tried to use Chivo, the Salvadorian government’s Bitcoin e-wallet, was this unreadiness manifesting itself.
It’s hard, however, to judge such a new technology on its first few days, weeks, or even months out in the world. There are inevitably going to be teething problems and the odd roadblock along the way. The move to make Bitcoin legal tender was a bold one, but it’s bold decisions that bring about change and make history.
Bukele’s not stopping with just legalizing Bitcoin, but plans to go one step further and create a Bitcoin City, funded by the cryptocurrency itself. He plans to use $1 billion of Bitcoin bonds to create the infrastructure and establish the city, all at the base of Conchagua volcano. This might seem like an odd place to build a city, however, the volcano’s geothermal energy offers huge opportunities for mining Bitcoin, so the decision does makesense.
The city will have all the same commodities that any other city does – commercial and residential regions, shops, entertainment outlets, restaurants and bars, and an airport. However, aside from the obvious Bitcoin aspect of the city, what makes it different is the fact that it will be exempt from income, property, or capital gains taxes. The only tax that those in the city will be subject to, is VAT. This is a monumental decision that has caught the attention of people all over the world.
Legalizing Bitcoin was just the first step of Bukele’s plan, but Bitcoin City is the other piece of the puzzle. It’s his hope that when construction on the city begins in 2022, he’ll be one step closer to his goal of making El Salvador the financial center of the world.
THE FUTURE OF CRYPTOCURRENCY
The Covid-19 pandemic triggered the decline of cash payments all over the world, and resulted in a marked shift towards digital payments. At the same time, cryptocurrency’s popularity exploded. However, the currency is still very much in its infancy, so there is little history to use to bolster its credibility.
As with everything new, there needs to be something of a community tester, and for cryptocurrency in practice, that tester is El Salvador. They are the ones making the change happen, and with the right regulatory practices, El Salvador might prove that cryptocurrency is a viable form of financial wealth.
Cryptocurrency’s future may be that it becomes one of the big financial players, and it may be used for everyday transactions just like dollars and cents are. Alternatively, it may be reserved for more occasional, one-off payments such as for house purchases or holidays. Or, it could end up burning bright before burning out entirely. Its future is unknown, but it’s incredibly exciting to see what could come of it.
Cryptocurrency is still relatively new, having only been successfully established in the early 2000s, but it’s a hugely exciting financial development. The possibilities of what can be done with a decentralized currency are astonishing. Normally, this type of thing is only read about in history books, but for us to be living through it and experiencing it all first hand is remarkable.
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